Fighting poverty by strengthening financial institutions

Updated: 26 June 2014

“An important way to fight poverty is to strengthen financial institutions,” says Lars Nyberg, Deputy Governor of the Riksbank. Babak Abbaszadeh agrees. He is President and CEO of the Toronto Centre, an organisation that has had the support of Sida for several years. He is pleased that the partnership will continue with increased support from Sweden.

The Toronto Centre is an independent, non-profit organization, which since its inception in 1998 has built productive partnerships with a wide range of organizations to become more effective in leveraging donors’ contributions. Together with support from the World Bank, IMF, Canadian International Development Agency, and Sida, the Toronto Centre has been able to train more than 3,000 mid-to-senior level regulators and supervisors from over 170 countries. While enhancing financial supervision is an important end in itself, the work of the Toronto Centre also contributes to poverty reduction. By enhancing financial stability; helping financial institutions to better deal with risks, high inflation and potential crises; and promoting greater access to financial services; the Toronto Centre contributes to economic growth, and, ultimately, a decrease in the rate of poverty.

“Good supervision and the ability to manage crises is the key to success,” says Mr. Abbaszadeh.

“Insufficient supervision of microfinance institutions together with an excessive credit culture are also some of the reasons behind the latest debt crisis some regions in India and Bangladesh are phasing,” says Ebba Aurell, Microfinance Specialist and Programme Manager at Sida for Toronto Centre and the Riksbank.

Sida has previously supported small projects, but is now providing major programme support directly to the Toronto Centre. The Riksbank makes a strong contribution by making its experts available as trainers in various Toronto Centre programs.

Going forward, regulatory issues will play a more important role in the programs, and all three parties agree on the reasons for this.

“The Toronto Centre values its important relationship with Sida. It also has a special relationship with Riksbank. Governor Stefan Ingves has been a member of the Toronto Centre Board of Directors since 2000. Riksbank executive staff and other experts are an important and valued component of Toronto Centre’s training programs”, says Babak Abbaszadeh

“Without good supervision, disaster will be total in the event of a financial crisis. World events have shown this to be true a number of times,” says Roger Garman, an adviser at Sida.

Mr. Nyberg stresses that unless the financial systems work, unemployment and poverty will increase as soon as the market becomes unstable. Serious and systematic financial supervision can ensure that this will not happen.

But what does good supervision actually mean? Experts say today that consumer protection and sound prudential supervision of financial institutions are central. Among other things, supervision ensures that the payment chain is working and that the bank has a reserve to fall back on if the market crashes.

To see if this really is the case, the Toronto Centre and the Riksbank conduct training in crisis management and crisis preparedness. Mr. Nyberg highlights the example of Albania, which collapsed totally in the early nineties due to the pyramid scheme that took place among banks in the country.

“After this event, the Bank of Albania began to fortify their systems and in collaboration with us, increase supervision of the banks. During the recent financial crisis, the country managed better,” he says.

The Toronto Centre invests heavily in the training of leaders and officials on regulatory issues. The Riksbank’s experts travel to the countries to work on practical problems that the participants must resolve. Current crises and events that have affected the financial market are discussed.

“The most important thing we can do is to support leaders who want to change the organization in order for supervision to work. A great deal centres on increasing confidence in the financial system, and supervision plays a pivotal role here.” says Mr. Abbaszadeh.

With ten years of development cooperation in countries such as Albania, Vietnam and Kenya, the Riksbank views the Toronto Centre as a natural partner. And Sida is positive about continuation of the work.

“We have an active and famous Swedish operator who supports the countries we cooperate with. The Riksbank plays an important role in the Swedish policy for global development cooperation. We support the partnership between the Toronto Centre and Riksbank,” says Mr. Garman.

Sida's mission

The Swedish International Development Cooperation Agency, Sida, is a government agency working on behalf of the Swedish parliament and government, with the mission to reduce poverty in the world. Through our work and in cooperation with others, we contribute to implementing Sweden’s Policy for Global Development.